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27 September 2018
In a 23 March 2018 decision,(1) the Sao Paulo State Appellate Court rendered an important precedent on the interpretation of Article 4(2) of the Arbitration Act (9,307/96).
The controversy brought before the court derived from a franchise agreement, which contained an arbitration clause that provided for disputes to be resolved by arbitration before the Centre for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC).
The franchisee filed a suit before the first-instance judge claiming that the franchise agreement should be terminated and the franchisor be required to pay an indemnification.
The first-instance judge summarily dismissed the franchisee's claims as the court lacked jurisdiction due to the arbitration clause inserted in the franchise agreement. The franchisee appealed before the Sao Paulo State Appellate Court, arguing as follows:
The appellate court upheld the first-instance judge's decision and dismissed the franchisee's appeal.
Interpreting Article 4(2)
Article 4(2) of the Arbitration Act provides formal requirements that must be followed by the contracting parties when inserting arbitration clauses in contracts by adhesions:
Article 4 – An arbitration clause is an agreement by which the parties to a contract undertake to submit to arbitration the disputes which may arise with respect to that contract.
§ 1 – The arbitration clause shall be in writing and it can be inserted in the main contract or in a document to which it refers.
§ 2 – In adhesion contracts, the arbitration clause will only be valid if the adhering party takes the initiative to initiate arbitration proceedings or if it expressly agrees to arbitration by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type.
A large number of decisions have been rendered by the Brazilian courts concerning the scope of this provision, which will be carefully analysed below.
In the case at hand, the judge-rapporteur stated that, contrary to the franchisee's arguments, the contractual relationship between the parties did not involve a consumer relationship between them. Instead, the franchise agreement was entered into in the context of a commercial relationship and related to the business activities of both parties.
Thus, the arbitration clause was deemed valid, even if the requirements of Article 4(2) of the Arbitration Act were not met:
This judge-rapporteur has already had the opportunity to express himself, in the context of commercial contracts, for the validity of the arbitration clause, even in the absence of the requirements of Art. 4º, § 2º, of the Act No. 9,307/96, because these requirements aim to protect situations in which an asymmetry of positions exist.
Asymmetrical relationship between franchisee and franchisor
After carefully considering the context and circumstances of the case, the judge-rapporteur found that both parties were experienced entrepreneurs which understood the agreements that they had signed; thus, it was unreasonable to assume that one of the parties should be considered more vulnerable.
The appellate court also pointed out that in commercial agreements, entrepreneurs evaluate risks, results, earnings and contractually stipulated conditions. Therefore, the court held as follows:
[The] rule of Art. 4º, § 2º of the Act No. 9,307/96, according to which the arbitration clause must have the express agreement of the parties, in 'attached written document' or 'in boldface type', is intended to protect the contractor who is in a situation of asymmetry between parties In the commercial context, that rule may even have relevance if one contracting party does not have the same business power as the other, which, however, is not seen in the specific case.
Finally, the decision also stated that the arbitration clause was written in a clear, detailed and easily visible specific chapter called "dispute settlement" of the agreement, with a full page devoted to it; thus, it was unreasonable for one of the parties to allege that they were ignorant of that clause.
In its decision, the judge-rapporteur also referred to the principle of competence-competence, regulated in Article 8 of the Arbitration Act:
The arbitration clause is autonomous in relation to the agreement in which it is inserted, whereupon the nullity of the agreement does not necessarily implicate the nullity of the arbitration clause.
Sole paragraph. It is the arbitrator's duty to decide, on his own motion, or at the request of the parties, issues regarding the existence, validity and effectiveness of the arbitration agreement and of the contract that contains the arbitration clause.
Thus, while the appellate court refused to recognise the claim of invalidity of the arbitration clause (as alleged by the franchisee), it also expressly stated that the future arbitral tribunal, to be constituted under the auspices of the CAM-CCBC, would definitively decide on its jurisdiction to settle disputes between the parties.
As mentioned, the interpretation of Article 4(2) of the Arbitration Act was the subject of several decisions before the Brazilian courts – in particular, the Sao Paulo State Appellate Court and the Superior Court of Justice, the last-instance court responsible for standardising jurisprudence in the country.
At least two other decisions – one from the Superior Court of Justice (for further details please see "Brazilian Superior Court of Justice rules franchise agreements are adhesion contracts") and one from the Sao Paulo State Appellate Court (for further details please see " Court rules arbitration clauses in contracts by adhesion are binding") – have shown that Brazilian jurisprudence still lacks a secure position regarding the scope and interpretation of Article 4(2).
Further, there are at least two other decisions from the Sao Paulo State Appellate Court that follow the same position: when there is no asymmetrical or unequal relationship among the contractors, even if the parties entered into a contract by adhesion, the absence of the requirements set out in Article 4(2) of the Arbitration Act does not invalidate the arbitration.
For further information please contact Luciano Timm at Carvalho, Machado & Timm Advogados (+55 11 2872 4760) or email (firstname.lastname@example.org). The Carvalho, Machado & Timm Advogados website can be accessed at www.cmtlaw.com.br.
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